Iraq In Crisis As Oil Is Threatened

Politics, Geopolitics & Conflict

- Trump has said the US will move more troops into the Middle East as Iraq faces the most critical challenge to its regime since the fall of Saddam Hussein, and as protesters for the first time threaten oil production - the revenues from which are at the heart of mass protests. This is backing Iran into a corner as well, and reports that are impossible to confirm say that Iran is moving missiles into Iraq to go on the offensive and attempt to salvage its fragile foothold in the wake of the resignation of Iraqi PM Mahdi, which leaves a dangerous political vacuum and still has done nothing to appease protesters. That danger notched up significantly late on Thursday when pro-Iranian militia supporters marched on Tahrir Square in Baghdad to clash with anti-government protesters. More than a dozen people had been stabbed as of late Thursday.

- Libya is experiencing more trouble at its El Feel oilfield, which last week we noted was the scene of an armed power struggle between the forces of General Haftar and the Tripoli-based Government of National Accord (GNA). The GNA managed to briefly wrest control of the oilfield from Haftar, who retook it later the same day with airstrikes right outside the compound. Now, the Libyan National Oil Company (NOC) says that the oilfield, which has just resumed production, has been shut down again over a valve closure on an export pipeline. That takes 73,000 bpd offline and out of the market. Those responsible for closing the valve have not been named by the NOC, which is urging local leaders to come forward, suggesting that no one knows who has shut down the valve at this point. With Haftar back in control, the value closure is not coming from eastern forces.

- The U.S. administration has added four crude oil tankers and two product tankers linked to PDVSA, Venezuela's state-owned oil company, to its sanctions list.

- At the same time that Iraq’s Shi’ite provinces are seething with violent unrest and massive instability, ISIS is still present in patches of northern Iraq in Sunni provinces and is trying to regroup. This week, reports said that four militiamen were killed, and possibly dozens of other wounded during an ISIS attack on the Naft Khana oilfield in the eastern province of Diyala. There was a similar attack in October.

- Shell won an oil spill court case this week, with a Nigerian court ruling blocking the enforcement of over half a billion dollars in damages related to an oil spill that took place a decade ago. This is not a definitive win for Shell, however, which has been fighting to get these cases tried in Nigeria rather than in London. The affected Ejama-Ebubu community has had this rewarded claim--handed out in 2010--registered in London, so it is possible that the UK courts could end up enforcing the payment eventually, despite the Nigerian court ruling.

Market Movers

- Apache stock was one of the biggest movers this week, in the wrong direction as vagaries over its Suriname drilling results sent shareholders running for the nearest exit. While there has been much anticipation over Apache’s drilling program in Block 58 offshore Suriname because it’s right next to Exxon’s massive finds in Guyana, things started to sour for Apache in October, when it got rid of its key geologist with no real explanation, leaving shareholders wondering what was going on. Then, earlier this week, when everyone was expecting concrete results from the drilling of its first well (it has the Noble Sam Croft contracted for an option to drill three holes), instead, we got less clarity.

Apache said only that tests were run on its Maka-1 well, which had reached a depth of 6,200 meters, and that they would resume drilling in mid-December “to evaluate a third play type” at a new target depth of about 6,900 meters. No one knows what that means, but what it sounds like is that they’ve already tested two drill holes and found nothing and are now going for a third. There was no mention of any oil or gas indications, and that doesn’t mean there weren’t any, but it means that shareholders feel they are being left in the dark here--and they are.

Either they’ve found absolutely nothing or they found gas and don’t want to announce it until they find oil to make it sound bigger and better; or, they are taking a hit in order to avoid what happened to Tullow when it announced a big find and then took a major share-price hit when it turned out to be lower-grade oil.

Discovery & Development

- And … the spoils of Libyan oil are already being handed out by the Government of National Accord (GNA), despite the fact that it doesn’t control the existing producing oilfields. Turkey, which has been contributing to the confrontation on behalf of the GNA against General Haftar, has announced it will begin oil and gas exploration and production studies in the Eastern Mediterranean after signing an MOU with the GNA last week on maritime boundaries in the Mediterranean Sea. This deal is fraught with problems, not the least of which are that--again--Turkey is encroaching on disputed territory, with both Egypt and Greece rejecting the maritime agreement. No exploration can begin until the agreement is approved by both countries’ parliaments.

Deals, Mergers & Acquisitions

- Brazil’s Petrobras is said to be considering the sale of additional stakes in major offshore oilfields as the state-run company seeks to de-leverage while it focuses on deepwater prospects. The additional stakes will include parts of the Marlim field, and parts of the Papa-Terra field, its Bolivian assets, Braskem SA, and BR DIstribuidora, which could add--although highly unlikely--as much as $7 billion to its significant divestment plan. However, Petrobras has sought to divest some of these assets before with little luck.

- Poland’s biggest oil refiner, state-run PKN Orlen, said it plans to take over state utility Energa.

- Norway’s sovereign wealth fund has removed Brazilian oil firm Petrobras from a watchlist of firms that could be dropped as investments due to ethical concerns. The company was included in the list in January 2016, after the corruption cases.

- Oklahoma-based pipeline company SemGroup has been cleared by shareholders for a $5-billion merger with Dallas-based pipeline giant Energy Transfer. This deal will add to Energy Transfer’s pipeline capacity with the addition of pipelines connecting the DJ Basin and the Anadarko Basin with Cushing terminals, among other new assets.